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If you are a newbie to investing in shares, you could consider the following characteristics of a company along with reading research reports, balance sheet and following the market and stock price – Big Brand , Well Integrated in the Community, Evaluate Competition and Leadership and Management
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We all know that investments in stocks give the best returns in the long run. But investing in stocks is not easy and you will be wary of going this way rightly so. You can take the help of financial planners or invest in Equity based Mutual Funds to take advantage of equity investments. But some of you might want to do it on your own but do not know where to start. Here are some tips to evaluate a company and its performance by observing the world around. This will get you started to understand companies. You of course need to read, research and analyze to make the final decision. These will just tune you into the companies worth looking at.
Big Brand – Look at the items that you use like your car, laptop or wheat flour. They could be products of established companies like a Mahindra or an ITC that have sustained for long and grown big over the years. These are typically stable companies with good management, less price fluctuations and have a wide reach. The price of these stocks may be higher but they normally have features like steady growth, good cash reserves, sound management and generally give good dividends. This means they are relatively good stocks to consider.
Well Integrated in the Community – Check out the products and services that are used by you and people around you. For example, the phone network provider, clothes you use, companies constructing the buildings in your city, banks providing services for you, people around you and in your company etc. If the product or service is omnipresent, then it is a good stock to consider as it could mean they have great demand. If they are providing products and services everywhere it could mean their logistics are in place, inventory management is efficient and prices are competitive which are features of a well managed company.
Evaluate Competition – When you look at a company to invest, check out how unique its product or service is. If there are too many players in that segment, the company will face stiff competition and may or may not sustain in the long run. If there are many innovations by companies and start-ups in the segment, it means the company has to constantly keep doing something different which is not easy. Such a segment calls for more research and analysis.
If the product or service is unique, there is a better chance for the company to grow. For example, once upon a time, HMT was synonymous with watches in India and it would have been considered a solid stock. If people are loyal to the company’s products, there will be fewer fluctuations in the company’s growth story and thus the company will be more stable.
Leadership and Management – Look at the leadership of the company and the core management team. Read up on them and their interviews. Their views, credentials and experience will help you understand if the company will sustain in the long run.
You can simultaneously read up on investing, current market conditions, read research reports on the companies that you have selected, understand and analyse the balance sheet and various financial ratios to finally make the ‘buy’ decision.
Did you consider these factors or any other factors before investing in shares?
Reading – If you like to study more about Direct Equity investing then we recommend you read “One up on the Wall Street” by Peter Lynch and “The Essays of Warren Buffett : Lessons for Corporate America” by Lawrence Cunningham.
Well Integrated in the Community – Check out the products and services that are used by you and people around you. For example, the phone network provider, clothes you use, companies constructing the buildings in your city, banks providing services for you, people around you and in your company etc. If the product or service is omnipresent, then it is a good stock to consider as it could mean they have great demand. If they are providing products and services everywhere it could mean their logistics are in place, inventory management is efficient and prices are competitive which are features of a well managed company.
Evaluate Competition – When you look at a company to invest, check out how unique its product or service is. If there are too many players in that segment, the company will face stiff competition and may or may not sustain in the long run. If there are many innovations by companies and start-ups in the segment, it means the company has to constantly keep doing something different which is not easy. Such a segment calls for more research and analysis.
If the product or service is unique, there is a better chance for the company to grow. For example, once upon a time, HMT was synonymous with watches in India and it would have been considered a solid stock. If people are loyal to the company’s products, there will be fewer fluctuations in the company’s growth story and thus the company will be more stable.
Leadership and Management – Look at the leadership of the company and the core management team. Read up on them and their interviews. Their views, credentials and experience will help you understand if the company will sustain in the long run.
You can simultaneously read up on investing, current market conditions, read research reports on the companies that you have selected, understand and analyse the balance sheet and various financial ratios to finally make the ‘buy’ decision.
Did you consider these factors or any other factors before investing in shares?
Reading – If you like to study more about Direct Equity investing then we recommend you read “One up on the Wall Street” by Peter Lynch and “The Essays of Warren Buffett : Lessons for Corporate America” by Lawrence Cunningham.
This article was originally published on Finalaya.com
Vidya Kumar
GettingYouRich.com
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